Norsk Hydro ASA

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Norsk Hydro ASA

Bygdoy allé 2,
N-0240, Oslo 2
Norway
Telephone: (47) 22-43-21-00
Fax: (47) 22-43-27-25
Web site: http://www.hydro.com

U.S. Headquarters:
Norsk Hydro Americas, Inc.
100 North Tampa Street, Suite 3350
Tampa, Florida 33602
Telephone: (813) 222-3880
Fax: (813) 222-5741

Public Company (44% owned by Kingdom of Norway)
Incorporated: 1905 as Norsk Hydro-Elektrisk Kvaelstofaktieselskab (Norwegian Hydro-Electric Nitrogen Corporation)
Employees: 37,900
Sales: NOK 102.43 billion ($12.8 billion) (1999)
Stock Exchanges: New York Oslo Stockholm London Paris Frankfurt Dusseldorf Hamburg Amsterdam Zurich Geneva Basel
Ticker Symbol: NHY
NAIC: 325311 Nitrogenous Fertilizer Manufacturing; 32532 Pesticide and Other Agricultural Chemical Manufacturing; 331316 Aluminum Extruded Product Manufacturing; 211111 Crude Petroleum and Natural Gas Extraction; 211112 Natural Gas Liquid Extraction

Norsk Hydro ASA is the largest public industrial company in Norway, with operations in three core areas: oil and energy, light metals, and agriculture, such as agricultural chemicals. Fertilizer ranks as the company’s leading product, but revenues from oil and gas contribute almost half of the company’s profits. Norsk Hydro’s light metals division is involved with the manufacture of aluminum and magnesium, and the company is a leading producer of PVC pipe in Scandinavia and the United Kingdom.

Early Years as a Hydro-Electric Company: 1905-40s

Norsk Hydro was founded in 1905 by Norwegian entrepreneurs Sam Eyde and Kristian Birkeland as Norsk Hydro-Elektrisk Kvaelstofaktieselskap (Norwegian Hydro-Electric Nitrogen Corporation). Originally, the company exploited the hydro-electric resources of waterfalls to generate electricity used in the production of nitrogen fertilizers. Initial output was mostly limited to Scandinavian markets until after World War II, when the Norwegian government took a 48 percent stake in the company and ushered in an era of multinational expansion and diversification. In 1969, the company name changed to Norsk Hydro A.S. By the 1990s, the company’s size justified a decentralized organization plan grouping the company into four business segments, each serving as the strategic and financial center for its composite divisions: agriculture, oil and gas, light metals, and petrochemicals. Combining these segments with a growing number of other activities—from alginate production to pharmaceutical research, seafood, and insurance—Hydro proved that its origins in fertilizers laid fertile ground for almost a century of lush business growth.

As early as World War II, Hydro’s fertilizer activities fueled widely divergent enterprises; in this case, German occupying forces made use of the company’s plant in Rjukan, Norway to produce heavy water (deuterium oxide) for use in nuclear reactor research. The Rjukan plant produced ammonia, which yielded heavy water as a by-product. With its use as an atomic brake fluid, heavy water was a key tool in atomic fission experiments and the development of the atomic bomb, a device that was considered a key determinant for the outcome of the war. Fearing German access to heavy water for their escalating research program, the Allies chose 11 saboteurs, trained them in the British Isles, and on February 1943 parachuted them onto the Hardanger plateau, from where the renowned “Heroes of Telemark” descended to Vemork by combining skiing, treacherous climbing, and sheer willpower to destroy the plant. Though the definitive impact of the sabotage on the outcome of the war remained a point of historical debate, the mission’s unquestionable adventure appeal energized numerous books and documentaries and two feature films.

World War II brought far more change than the destruction of the Rjukan plant. After the bombing of Hydro’s Heroya plants in 1944 and the financial losses that resulted, the company moved to consolidate much of its business in Norway and to expand the scope of its interests. While 97 percent of the company’s shares were owned by foreigners at the outbreak of World War II, after armistice the Norwegian government seized German holdings and took a 48 percent stake, which along with additional purchases and reparation rose to a 51 percent government stake in the company.

Expansion in the 1950s and 1960s

Starting in the 1950s, Hydro expanded into a number of new businesses, both directly and indirectly related to its core fertilizer production. In 1951, Hydro began production of magnesium metal and polyvinyl. In 1967, the company opened an aluminum reduction plant and semi-fabricating facility at Karmoy, Norway, and constructed the Rldal-Suldal hydro-electric facility to power the Karmoy works. The company also made preliminary steps in seafood with its fish-arming subsidiary, MOWI, in 1969. With Hydro’s 1965 and 1967 opening of two Norwegian ammonia plants using naphtha (a liquid mixture of hydrocarbons distilled from petroleum, coal tar, and other hydrocarbon-rich substances) and heavy fuel oil feedstocks in the production process, the company became dependent on outside suppliers of raw materials. Attempting to supply its own hydrogen for ammonia production, Hydro began investigating opportunities in gas and oil production in the late 1960s. These initiatives, paired with a new management strategy starting in the late 1960s, spurred tremendous growth that transformed the company into an industrial group.

Under the leadership of Johan B. Holte (president from 1967 to 1977 and chairman of the board from 1977 to 1985), Hydro restructured not only its policies on employee relations but its overall organizational structure. Holte set new standards for cooperation between management and workforce at all levels of Hydro; and those levels multiplied rapidly, as Holte initiated aggressive moves to expand and diversify core business beyond domestic fertilizers and into light metals, gas and oil, and eventually other segments on an international scale. In a 1990 retrospective article, Holte’s successor as president, Odd Narud, summarized the organizational strategy for Hydro’s in-house publication, Profile Magazine: “The company has concentrated on growth in its core areas; agriculture, oil and gas, light metals and petrochemicals. It is the sustained efforts to improve in these areas which have created the basis for serious involvement in new product areas.”

By the early 1970s, oil and gas constituted one such “new product area.” In 1965, when Norway granted licenses for offshore petroleum exploration, Hydro obtained concessions and formed partnerships with foreign companies on numerous fields. In 1969, the Phillips Petroleum-operated drilling rig Ocean Viking struck oil in the Ekofisk field, in which Hydro owned a share. The company’s success with North Sea oil and gas continued with the Elf-Aquitaine-operated Frigg discovery in 1971. In an attempt to combine Hydro’s success with a stronger petroleum policy, the Norwegian government increased its share of Hydro to 51 percent and created Statoil, a state-owned company, in 1972. Hydro began operating its oil refinery at Mongsted, Norway in 1975. Experience from these projects in the 1960s and 1970s would prove extremely beneficial for Hydro’s innovative contributions to oil and gas development in the late 1980s and early 1990s.

Growth through Acquisitions in the 1970s and 1980s

Building on its natural gas liquids resources, Hydro began investing large amounts of capital in the petrochemical industry in the early 1970s, with the decision to build the Rafnes petrochemical complex, which began production of ethylene and vinyl chloride in 1978. Falling in the wake of the international oil crises, however, Hydro’s petrochemical activity incurred losses until the late 1980s. Nevertheless, the company implemented ongoing growth strategies through the 1980s: in 1982, the company formed Norsk Hydro Polymers Ltd., one of two PVC manufacturers in the United Kingdom, after acquiring BIP Vinyl’s Aycliffe facility and the last 50 percent of Vinatex; in 1984 the company acquired KemaNord’s facility in Stenungsund, Sweden, and formed Norsk Hydro Plast AB; in 1987 Hydro bought 47 percent of Singapore Polymer to better target Asian markets (increasing its holdings to 60 percent a year later); and in 1989, Hydro Polymères was formed in France to produce PVC and engineering plastics in continental Europe. By 1990, the company announced development of a new PVC plant at Rafnes. And in March 1991, Hydro announced a joint venture with BFGoodrich Company to market vinyl-based injection-molding compounds for use in applications such as business machine components, telecommunications equipment, and construction products.

Company Perspectives:

Hydro is an industrial group based on the processing of natural resources to meet needs for food, energy and materials. We must do this in ways that do not diminish the ability of future generations to meet their own needs. The challenge is to find a proper balance between caring for the environment and serving human needs. We want to take our part of this responsibility. So we are designing our products to have the minimum adverse effect on the environment throughout their entire life cycle. We will conduct our business activities in accordance with the demands of the environment and demonstrate openness in environmental questions. By doing this, we hope to prove that we are worthy of our ‘licence to operate.’

The company also covered new ground in fertilizers, with the acquisition of NSM, a Dutch firm (1979); 75 percent of the Swedish firm, Supra (1981); a British firm renamed Norsk Hydro Fertilizers Ltd. (1982); a West German company renamed Ruhr Stickstoff AG (1985); and 80 percent of the French Compagnie Francaise de L’Azote (1986), along with the remaining 20 percent the following year. After restructuring its fertilizer division in 1987, the other divisions in Hydro’s agriculture segment shifted as well, with sales of industrial gas operations in Finland and Sweden and formation of a new company, Hydrogas AS, the largest company in the industrial chemicals division. By 1990, Hydrogas sold the whole range of industrial gases in Norway and held about ten percent of the carbon dioxide market in Europe. In 1991, the agricultural segment continued to acquire fertilizer facilities: one in Rostock, Germany; another in Green Bay, Florida; another in the United Kingdom; and three ammonia plants facilities in Trinidad and Tobago.

Hydro expanded its light metals segment in the 1980s. First it acquired five aluminum extrusion plants in Europe from Alcan Aluminum Limited. Then, in 1986, the group merged with Ardal og Sunndal Verk AS (ÅSV), a government-controlled aluminum company, and consolidated its interests in May 1988, renaming the merged entity Hydro Aluminum AS (ranked as the world’s fifth largest aluminum company in 1990, with sales of NOK 15 billion). Hydro positioned its growing aluminum extrusion business to supply growing demand in strategic market segments, such as the automotive industry (a separate automotive aluminum unit was established in Munich, the German automotive capital, in 1990) and tubing for air conditioning systems in the United States. The company’s purchase of Bohn Aluminum & Brass in 1990 further strengthened its position in the U.S. extruded products market.

Just as aluminum’s light weight and high strength characteristics made it suitable for automotive parts ranging from frames to tires, magnesium was characterized by similarly useful form-ability and lightness. In addition to the construction of a new magnesium plant in Canada in 1986, Hydro collaborated with the automotive industry in the development of magnesium components. By the early 1990s, these efforts were disrupted by a stagnant economy—which led to depressed prices and high inventories of magnesium—and by reverberations from the United States Commerce Department International Trade Administration’s 1991 claim that Canada and Norway were unfairly dumping magnesium in the United States, and its imposition of anti-dumping duties to deter continuation of the practice. That same year, Hydro announced reduction of magnesium production in its Norwegian and Canadian plants, resulting in 1992 levels between 25,000 and 30,000 tonnes less than 1991 levels.

Expansion and internationalization of its core businesses increasingly exposed Hydro to opportunities in the less related, though no less promising spectrum of “other activities,” including seafood and salmon farming and processing. While Hydro’s involvement in salmon farming began with its 50 percent acquisition of MOWI in 1959, not until the end of the 1970s did Hydro’s stake reach 75 percent, and not until 1980 did MOWI operate internationally. In 1980, MOWI acquired 44 percent of the Icelandic ocean ranching company, ISNO, and 75 percent of Fanad Ireland, a near-bankrupt trout farming operation that became a world leader in fish farming. Other developments included the acquisition of Golden Sea Produce (1983), with Sea Life Centre aquariums in Scotland and England; new fish farms at Haveroy and Turoy (1985 to 1986); the establishment of the Prodemar turbot farming facilities, in cooperation with the Bank of Bilbao in Spain (1987); the establishment of Biomar, a joint venture between Norsk Hydro, Dyno Industrier a.s., and KFK (1988); and the acquisition of the Danish fish smoking companies Pescadana and B&H Fish Export (1990).

Starting in the mid-1980s, Hydro also aspired to become a leading company in bio-polymers, fatty acids, and pharmaceuticals. A series of acquisitions toward that end started in 1985, when Hydro bought a majority share (and later acquired over 90 percent) of Carmeda AB, a producer of biologically active surfaces for medical equipment. In 1986, Hydro Pharma AS was established to develop pharmaceutical activities, including the products of drug delivery systems by Biogram AB, diagnostic ultrasound equipment by Vingmed Sound A/S, enzymes by Marine Biochemicals, and fatty acids by Johan C. Martens. In 1987, Hydro Pharma acquired all the shares of NAF Laboratories, a leading Norwegian pharmaceuticals supplier. Hydro’s Pharma and Biomarine Divisions were merged into the Biomedical Division in 1988. And in 1989, the company increased its stake in Securus, a company listed on the Oslo stock exchange, to 77.3 percent. By 1990, these diversified activities were all brought under one umbrella with Securus’s takeover of Hydro’s Biomedical division.

The 1980s represented a period of growth that virtually transformed Hydro into a multinational giant. The company’s operating revenue of 14 billion kroner in 1980 soared to over 60 billion in 1990; its 13,000 employees increased to 42,000 over the same period.

Key Dates:

1905:: Norsk Hydro-Elektrisk Kvaelstofaktieselskap is founded.
1951:: Company begins production of magnesium metal and polyvinyl.
1969:: Company changes name to Norsk Hydro A.S.
1972:: Government of Norway increases its share of Hydro to 51 percent.
1999:: Hydro acquires Saga Petroleum ASA; the government of Norway’s stake in Hydro is reduced to 44 percent.

Streamlining Operations in the 1990s and Beyond

A picture of Hydro with nothing but such positive growth figures, however, would be misleading; suffering from international economic recession in the late 1980s and early 1990s—compounded by low-priced competition from the changing economies of Eastern Europe and the former Soviet Union in areas such as light metals and fertilizers—Hydro was forced to consolidate operations and manage cost reductions to remain competitive into the 1990s. As early as April 1991, efforts began to pay off, with Moody’s upgrading Hydro senior debt ratings to A3 from Baal, reflecting the company’s good positioning in the face of possible economic slowing in Western Europe. In 1992, the company president, Egil Myklebust, announced a two-year plan to reduce fixed costs by NOK 1,500 million. In the third quarter of 1991, the magnesium and fertilizer businesses were extensively restructured, with plant closures and rationalization of Swedish fertilizer interests. In December 1991, Hydro’s UK North Sea oil and gas interests were sold to British Borneo Petroleum, and Dutch exploration and production assets were also put up for sale. In June of that year, Japan’s Nippon Steel Chemical Co. and Nichimen Corp. jointly took over the resin compound manufacturing division of Hydro’s chemical division.

In the early 1990s, Hydro also implemented a strategy of internationalization in its core businesses. In 1992, the company’s oil and gas division was made operator for the first offshore license in Namibia. It was also awarded blocks in Vietnam, Angola, and continued to negotiate numerous feasibility contracts in Russia (such as the 1990 gas discovery in Schtockmanskoye in the Barents Sea). In 1993, Hydrogas A.S. negotiated the acquisition of 70 percent of the Polish state-owned Plgaz Gdansk as part of that firm’s privatization process. In its agricultural operations, Hydro spent the early 1990s acquiring fertilizer facilities in the United Kingdom, the U.S., and in Germany. Hydro also bought ammonia plants, located in Trinidad and Tobago, from W.R. Grace, and in 1994 Hydro purchased Fisons’ NPK fertilizer business.

Major gas and oil development continued to distinguish Hydro as a major technical innovator and a big player in improved petroleum markets projected for the later 1990s. Hydro applied state-of-the-art technology as an operator in the Oseberg field, which quickly became a major source of oil and gas after it began production in 1988. Building on Oseberg’s transport system, the Troll-Oseberg gas injection (TOGI) project, and later on the Troll oil project, Hydro demonstrated the advantages of remote-controlled subsea systems to develop and control deep-water projects. Much of the technology was used in the Phillips Petroleum Company’s 1993 project to plan and build new facilities called Ekofisk II at the Ekofisk field, of which Hydro held a 6.7 percent share. After acquiring 300 Danish gasoline stations from UNO-X in 1990 and Mobil Oil’s Norwegian marketing and distribution system in 1992, Hydro also became a major player in on-land gas and oil marketing. In 1994, Hydro merged its Norwegian and Danish oil and marketing operations with Texaco’s.

Despite the company’s expansion, sluggish sales caused by a weak global economy prompted Hydro to divest some of its noncore operations in the early 1990s. In 1992 the company sold Hydro Pharma a.s., its pharmaceutical division, and a year later Hydro sold Freia Marabou, a manufacturer of chocolate.

Hydro announced the highest profit in the company’s history in 1994, buoyed by higher industry prices in three of Hydro’s four core divisions. During 1994, aluminum prices increased about 75 percent, nitrogen fertilizer prices enjoyed a rise of about eight percent, and PVC prices jumped 27 percent. Oil prices fell during the year, and though they were forecast to rise during 1995, the U.S. dollar was expected to weaken, thus bringing oil prices down. Still, Hydro believed its higher production of crude oil would offset low oil prices. Hydro’s future seemed promising, but industry analysts remained slightly skeptical, worried that Hydro had cut back costs too severely and thus would be too reliant on commodity prices.

In the mid-1990s Hydro became involved with Canadian oil and gas operations when it partnered with Petro-Canada to work oil and gas fields off of Canada’s east coast. In 1996, Hydro further expanded its on-land gas and oil operations when it acquired the Swedish gas station business of UNO-X. In other divisions, Hydro formed a $500 million joint venture with Jordan Phosphate Mines Co. and bought a 30 percent stake in Hulett Aluminium in South Africa in 1997.

Heading into the second half of the 1990s, Hydro faced many challenges as it struggled to succeed in a volatile economy. By 1998 prices of crude oil, aluminum, and fertilizer had dropped, severely affecting Hydro’s earnings and operations. Crude oil prices in early 1998 were the lowest since 1994, and not only had fertilizer prices declined, but Hydro suffered from low demand outside of Europe and overcapacity problems. In addition, the outlook for the fertilizer industry was gloomy. In response to poor market conditions and declining earnings—net income was NOK 5.2 billion in 1997, compared to NOK 6.2 billion in 1996—Hydro restructured its operations to focus on three core segments, including oil and energy, agriculture, and light metals. Hydro planned to cut back its investment budget and sell or spin off its noncore operations, such as pharmaceuticals, seafood, and food additives.

In 1999, Hydro made its largest acquisition to date when it purchased Saga Petroleum ASA, the leading independent producer of oil in Norway. Just a year earlier, Hydro had sold a ten percent interest in Saga to Statoil, and talk of Hydro reducing or exiting petrochemicals rose. However, in 1999, Hydro chose to focus on expanding its operations in oil production. With the Saga acquisition, Hydro planned to cut back its work force in oil exploration by about 20 percent in order to lower costs. Saga operated a number of oil fields on the Norwegian shelf, including Snorre, Vigdis, and Tordis, as well as Haltenbanken South. The purchase boosted Hydro’s oil exploration and production operations considerably, and oil and gas represented about 65 percent of the company’s revenue base, up from about 50 percent prior to the acquisition.

Hydro endeavored to integrate its new business strategy, called “Focus on the Future,” in 1999, and the acquisition of Saga was a major step in the right direction for the oil and energy division. In light metals, Hydro made progress by acquiring a 25 percent interest in Brazilian company Alunorte and sealed a long-term agreement for Aluvale, also of Brazil, to supply aluminum. Hydro also invested in a remelting facility in the United States and began construction of another state-of-the-art remelting plant, which would use remelted scrap to produce primary quality aluminum. In early 2000 Hydro acquired Wells Aluminum Corporation, an extrusion company headquartered in the United States. The purchase greatly expanded Hydro’s North American operations and made it the fourth-largest extrusion company in North America.

Faced with difficult market conditions, Hydro’s agriculture division focused on a turnaround strategy to return to profitability. The strategy included plans to reduce costs by NOK 2 billion during 1999. Three nitrogen fertilizer plants in Europe were closed to strengthen operations, and Hydro merged its Hydro Agri Europe and Hydro Agri International units into a new segment called Plant Nutrition.

Hydro sold several noncore assets during 1999 for a total of NOK 2.4 billion. Divestments in 1999 and 2000 included Pronova Biopolymer, Hydro’s share of Dyno, and Hydro Sea-food AS. Hydro also sold its oil and gas assets in the United Kingdom to Conoco (U.K.) Limited for $540 million. The sale included exploration licenses and Britannia, Alba, and Gryphon fields, all acquired by Hydro during its purchase of Saga. In June 2000 Hydro sold its Hydro Aluminium Fundo division, which produced aluminum wheels, to Midal Group/Aluwheel of Bahrain.

Net income declined from NOK 3.75 billion in 1998 to NOK 3.42 billion in 1999, but the company remained confident that profitability would soon return. Both operating income and pretax income increased, and Hydro announced that improvements resulting from its new “Focus for the Future” corporate strategy exceeded expectations; CEO Egil Myklebust noted in Hydro’s 1999 annual report that the company had enjoyed performance improvements of more than NOK 1.3 billion during 1999, surpassing Hydro’s target of NOK 1 billion. As Hydro welcomed a new millennium, the company anticipated significant growth and continued expansion. Myklebust reflected on the future and its new business strategy in a prepared statement: “Hydro’s history and growth is closely tied to Norway. But to move forward and become a leading global performer in selected businesses, we need greater international presence in terms of market positions, assets and employees. … Our base will continue to be in Norway, but we will have global operations in Oil and Energy, Light Metals, and Agri. It is in these areas that we intend to become a leading player.”

Principal Subsidiaries

Norsk Hydro Americas, Inc. (United States); Hydro Agri Argentina SA; Hydro Agri Colombia Ltda.; Hydro Agri Costa Rica SA; Hydro Agri Uruguay SA; Ceylon Oxygen Ltd. (67%; Sri Lanka); Hydro Chemicals Norge AS; Hydro Wax AS; Hydrogas AS; Norsk Hydro Chile SA; Norsk Hydro (Far East) Ltd. (Hong Kong); A/S Svaelgfos; Hydro Aluminium AS; Norsk Hydro Kraft OY (Finland); Norsk Hydro Magnesiumgesellschaft mbH (Germany); Hydro Texaco AS (50%); Norsk Hydro Olje (Sweden); AS Pelican (36%); Scancracker (50%).